This segment first aired live on the Brian Lehrer Show on November 13, 2013. An edited version was included as part of a best-of show on December 26 (the original audio is included here).
A modest proposal: merge Canada and the US. Diane Francis, editor at large for Toronto's National Post, thinks it's a good idea. Her new book Merger of the Century: Why Canada and America Should Become One Country(Harper, 2013), explores the economic, political, and cultural implications of the super-merger.
The Case for a Merger
In 2014, Scots will hold a referendum on independence from the United Kingdom, and the debate has mostly concerned the economic aspects. One poll showed that 79 percent of Scots would vote for independence if they reaped an economic benefit of £500 a year or more per capita, but would not vote for independence if there was no economic benefit.23 In the case of a U.S.–Canada merger, there would be economic gains for both countries. Canadians would receive compensation in return for their resources, and the new partnership would yield untold opportunities and benefits for both populations.
I believe the United States and Canada should and can merge, but I also recognize why this would be difficult. I believe this is the most desirable way forward. I also believe a merger is achievable. In the absence of a merger, or another form of political fusion, energy will be just one of several contentious issues that could cause confrontations and damage to both sides. There are several scenarios that would represent security threats to the United States and lead to conflicts and some form of intervention. For instance, if China, Russia and others succeeded in capturing control over much of Canada’s resources and its Arctic region, thus gaining political influence, the relationship between the U.S. and Canada would be disrupted, as would oil shipments. Likewise, if Canada continued to mishandle its First Nations and other aboriginal issues involving land claims and compensation issues, there would be an escalation in the frequency and gravity of incidences involving civil disobedience, border breaches and violence to infrastructure and corporate assets. Finally, if Quebec separatists tried to exit Canada again, economic and political instability would generate undesirable spillover effects on the U.S. economy. There might also be sabotage and violence by environmentalists that Canada would not be in a position to prevent. Any one, or a combination, of these possibilities would, in extreme circumstances, certainly lead to confrontation, violence or even invasion. Such scenarios may appear improbable, but serious incidents have occurred in the past.
The likeliest clash could arise if China’s aggressive entry into Canada’s economic and political arenas is allowed to continue. In 2012, Beijing was able to pull off its biggest foreign takeover anywhere in the world when Canada’s federal government allowed the $15 billion purchase of a large Canadian oil company despite considerable public opposition, warnings by Canadian intelligence agency officials and the recent establishment of precedents against such takeovers. Even more puzzling, Canada agreed to a sweeping trade deal that afforded China special market access for thirty-one years and full legal protection without reciprocal rights to Canadians operating in China. The deal, when signed, cannot be canceled for fifteen years, whereas the North American Free Trade Agreement (NAFTA) can end on six months’ notice.
China has targeted Canada for years because of its enormous oil sands, its undeveloped resources, its dominant Arctic position, its backdoor entry into the U.S. market and technology sector, and its vast landmass capable of supporting millions more people. Until 2012, China, like Russia, slowly picked off minority ownership in public companies, often undisclosed, or bought private, small companies. Obviously, gaining more political influence in Canada is in the long-term interests of both nations.
Canadian leaders, convinced the takeover would gain markets and sell oil to Asia, suddenly recognized the China playbook: no sooner had the takeover and trade deal been approved than China rolled out its Arctic scheme. In late 2012, Canada’s federal government was asked to approve a gigantic mining plan in Nunavut that involved development of a Chinese-owned-and-operated port, and town, on the Arctic Ocean. This was billed as a one-off transaction, but the Chinese intend to create a string of ports and listening posts to gain control along the Northwest Passage because of its logistical importance to trade in the future.
Such initiatives, and their underlying grand strategy, will eventually place Canada in the middle of a contest among the United States, China and Russia for resources and control of the Arctic. By many measures, Canada is no match for any of these superpowers.
By 2011, the four biggest Chinese oil companies—PetroChina, Sinopec, Chinese National Oil Corporation and China National Offshore Oil Corporation (CNOOC)—had combined revenues of $1.1 trillion, equivalent to 78.8 percent of Canada’s GDP.24 Russia’s Gazprom, Lukoil, Rosneft, TNK-BP and Surgutneftegas had combined revenues in 2012 of $406.89 billion, equivalent to 29 percent of Canada’s GDP. These companies have political agendas and powerful proprietors—Beijing in China’s case and the Kremlin in the case of Russian oligarchs. Neither nation upholds the same values as Canadians or Americans, and they represent Trojan horses that are eager to partition an already weak, fragmented Canada.
At the same time, Canada also faces internal challenges concerning its hundreds of restive First Nations bands, environmental organizations and Quebec separatists. In 1995, during the last Quebec referendum, two First Nations threatened to block the St. Lawrence Seaway and to vandalize power lines serving the industrial U.S. Eastern Seaboard if Quebec attempted to force them to leave Canada. That same year, separatist leaders tried to recruit Canadian military personnel and threatened to seize Canada’s fleet of jet fighters, stationed mostly in Quebec, if they won.25 In 2005, a CBC documentary alleged that Canada’s military officials flew jets to a U.S. air base so they could not be seized and used as pawns.26 In 2012, the separatists regained power in Quebec.
More recently, in 2011, a First Nations chief in British Columbia threatened to harm herself rather than allow construction of an oil pipeline through her band’s contested lands. Then, in December 2012, another chief went on a hunger strike to demand sweeping land claims and compensation, and a new youth movement called Idle No More staged protests in Canada and the U.S. The movement was formed out of frustration felt across Canada’s over 630 First Nations communities.27 The elected chief of the Assembly of Nations was pressured to leave office on a medical leave, and thousands staged protests caused work stoppages and blocked highways. Their grievances have remained mostly unaddressed throughout Canada’s history.
Against such internal or external incursions, Canada carries no big stick. In 2011, Canada’s active military personnel totaled 68,250,28 or roughly the seating capacity of Candlestick Park in San Francisco. The Canadian coastline, at 151,500 miles, is the world’s longest, but its navy, respected worldwide, comprises only 8,500 regular personnel, 5,100 reserve sailors and thirty-three ships,29 including four submarines, which are not able to spend a significant amount of time under the polar ice because these aging vessels lack the ventilation and other equipment to do so. The second-longest coastline is Indonesia’s, at 34,000 miles, guarded by 111 ships and 74,000 personnel. The United States, with the ninth-greatest length of coastline (12,380 miles), has an armada of 287 ships and more than 317,000 active personnel (plus 109,000 reservists) that patrol the world.30
Canada’s military dependency on the United States is nothing new and is the subtext of the relationship. This dependency, which has existed since Britain faded after 1919 as a superpower, has required Canada, like other smaller nations, to align itself with the grand strategy of its superpower-benefactor or, alternatively, remain pliant. This means that Canada, in other words, cannot bite the hand that guards it.
Occasionally, Canada has crossed the line. Since 9/11, minor disagreements and border irritants have turned into serious bilateral clashes behind closed doors. Few are aware of just how serious the issues are, and that they go way beyond the truck bottlenecks or lengthening lineups at airports and border crossings. The border choke since 9/11 is just one symptom of a deteriorating relationship.
The border clog is harming Canada. Trade has increased in absolute numbers since the peak in 2001 because of the appreciation of commodity prices, but has fallen as a percentage of Canada’s GDP as a whole. Two-way trade grew from $409.778 billion in 2000 to $596.235 billion in 2011,but Canadian exports to the U.S. represented 19.1 percent of its GDP in 2011, compared to 34.4 percent in 2000. Furthermore, Canada’s exports to the U.S. contributed 2.3 percent growth to Canada’s economy from 1982 to 2001 and only 0.5 percent afterward.31
The U.S. and Canada could have avoided some problems by moving further toward economic integration, as others have in Europe, Africa or the Caribbean. But they have remained at the nascent, or Free-Trade Era stage, in terms of economic integration, since 1989. Others have created customs unions, monetary unions, common markets, economic unions, fiscal unions and even some degree of political union. The U.S. and Canada remained frozen at initial stages, mostly because Mexico was unable to participate. But by 2010, the two had decoupled and begun to negotiate more integration in order to create a security perimeter to address police, immigration and customs issues.
This resulted in the announcement in early 2011, by the two countries, of an initiative called Beyond the Border: A Shared Vision for Perimeter Security and Economic Competitiveness, designed to create stronger perimeter security and accelerate the flow of people, goods and services between the two countries by 2013. The objective was to address bilateral economic and political difficulties, and to open the border to commerce in order to please Canada. But to please Americans, the goal was to block criminals, terrorists, illegal substances and contraband from entering either country through enhanced cooperation between law enforcement and other officials.
Obviously, the announced goals were mutually exclusive. The border is no longer working properly for either nation, and the perimeter deal won’t either. The border will continue to close. In fall 2011, the media reported that the U.S. was considering fencing off parts of the U.S.–Canada border, and it has been deploying drones to patrol the border since 2006. The only foolproof way to fix the border—as well as avert conflict—is to eliminate it altogether.
This book makes the case for a merger, and proposes some business and policy approaches to accomplish the goal. The aim is to quantify Canada’s value to Americans so they realize just how important Canada is to their future, and to make Canadians realize America’s importance to them along with the need for more integration, if not an outright merger. It also outlines the economic and political power Canadians deserve and could wield if the two countries joined forces and how this could remove future logjams in the U.S. political process. I examine world business and political trends, border conflicts, the vanishing options available for America and Canada in their current incarnations, the synergies of a merger, five ways to structure a deal and how to finance a deal, how political resistance and differences could be addressed, and the options available if there is no merger in the near or far future.
Do I believe a merger will happen? I honestly don’t know. But it should. Americans and Canadians cannot ignore or refuse to consider such a policy option, no matter how objectionable it may seem and no matter how seemingly impossible or costly. The countries cannot maintain their living standards and are too heavily invested in a free-market model that is being outmaneuvered, and will be destroyed, by nations and regions that purposely divide them or that adhere to their own unique forms of state capitalism.
Politically, their outdated constitutional constructs and democratic institutions are flawed, perhaps impossible to improve or even merge. But an economic union is certainly possible, fully or partially, governed by an improved super-layer of government over existing federal levels. If even that attainable goal is also unlikely, then Canada must transform itself in a way that has historically proved elusive. So must the United States. Each must change, merger or no, because whatever the future, the status quo is not an option. Ideally, this book will help Americans and Canadians realize that they have decisions to make and that the way forward, even if challenging, would be to unite like the Germans, govern like the Swiss and think more like the Chinese.